HIGHLIGHTS

A new utility paradigm for China's new energy era

China’s energy market is evolving fast. The government has made environmental policies a strong focus for development. What was a heavily-polluting carbon-based industry is making considerable efforts to switch to renewables. Notably, China has gone from a standing start just a few years ago to now having the world’s largest wind power capacity and the world’s fastest-growing solar PV power generation sector.

This is just one example of how rapidly China’s energy sector is changing. And key to that transformation is the development of new business models and infrastructure that seek to incorporate many of the features of digital models, using data and platforms to deliver services that are built around the needs of the customer. The development of this “Energy Internet” holds implications for the entire energy value chain in China. It serves as checklist for the progress that needs to be made to move from an “old economy” approach to generation and distribution to one that meets the needs of customers in the 21st century.

The evolution of China’s Energy Internet will move through distinct phases. First is a testing and piloting phase with digital infrastructure, new business models and the integration of distributed renewable integration. Next comes the development of platforms that build ecosystems of services and experience around the customer, driving choice and differentiation. Third is the availability of ubiquitous energy with agile and resilient infrastructure that enables plug-and play-access to the grid to “prosumers” who produce their own energy as well as energy traders. Finally, the Energy Internet enables a low-carbon society, with renewables dominant. Of course, this is a long-term vision.

The changes taking place in the market will bring in new players while forcing others to adapt and transform. As consumers become more aware of the possibilities offered by new models and technologies, they will start to demand more information and support to manage their own energy use and even production. For incumbent generation and distribution businesses, that will drive the need to transform from current business models. In addition, as markets deregulate, innovative new entrants will begin to test and scale new propositions designed to capture new consumers. And those new consumers are likely to include digital businesses that already enjoy powerful connections to Chinese consumers and will seek to take advantage of those existing relationships to deliver new and innovative energy services.

The scale, extent and speed of change that the Energy Internet paradigm represents are set to dramatically transform China’s energy market. Traditional players will need to make sure that they can change as well—and they need to start now. They will have to respond to new regulatory frameworks. They will need to build out their digital infrastructure alongside physical assets and develop new technology capabilities that can help them improve customer adhesiveness and deliver in a new more connected and integrated transparent environment.

But perhaps the biggest challenge of all is the change in mindset upon which success in the new industry depends. Moving from a regulated environment to one in which customers’ needs are paramount is a big transition. But it’s one that will increasingly dictate the nature of the Chinese energy industry.

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